Gillespie v. Comm'r

T.C. Memo. 2007-202

UNITED STATES TAX COURT

ROBERT AND INES M. GILLESPIE, ET AL.,1 Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 3405-05L, 3489-05L, Filed July 24, 2007.
3490-05L.

These cases brought pursuant to sec. 6330, I.R.C.,
are before the Court to determine whether Ps must pay
penalties pursuant to sec. 6673(a)(1), I.R.C., for
instituting procedures primarily for delay, etc., and
whether counsel must pay R’s excess counsel fees
pursuant to sec. 6673(a)(2), I.R.C., for unreasonably
and vexatiously multiplying the proceedings.
1. Held: Ps penalized pursuant to sec.
6673(a)(1), I.R.C., for instituting and maintaining
proceedings primarily for delay, making frivolous
arguments and taking groundless positions, and
unreasonably failing to pursue available administrative
remedies.

1
Cases of the following petitioners are consolidated
herewith: Robert E. Gillespie Asset Management Trust, Robert E.
Gillespie, Trustee, docket No. 3489-05L; and Robert E. & Ines M.
Gillespie, docket No. 3490-05L.
 - 2 -

2. Held, further, Ps’ lead counsel liable for R’s
attorney’s fees since he signed pleadings and other
papers knowing Ps’ claims to be meritless and, thus,
abused the judicial process and unreasonably and
vexatiously multiplied the proceedings.

Robert Alan Jones, Maria Angelisa L. Lacorte, and Mario P.

Fenu, for petitioners.

Wesley J. Wong and Paul C. Feinberg, for respondent.

MEMORANDUM OPINION

HALPERN, Judge: The cases in this consolidated proceeding

are before the Court to determine whether petitioners must pay

penalties pursuant to section 6673(a)(1) and whether two of

petitioners’ counsel common to all of the cases, Robert Alan

Jones (Mr. Jones) and Maria Angelisa L. Lacorte (Ms. Lacorte),

must pay certain of respondent’s costs pursuant to section

6673(a)(2). For the reasons that follow, we impose on

petitioners penalties totaling $15,000 and on Mr. Jones costs

totaling $12,798.

Unless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

For convenience, we shall use the term “petitioners” to

refer to all of the petitioners, collectively, and also to refer

to the petitioners or the petitioner in each of the cases before
 - 3 -

us (notwithstanding that, in docket No. 3489-05L, there is only

one petitioner). Generally, we shall use the term “counsel” to

refer to Mr. Jones and Ms. Lacorte.

Background

Introduction

All of these cases began with a petition for review of a

determination by respondent’s Appeals Office (Appeals) that

respondent might proceed with certain activities to collect

unpaid tax (or taxes) owed by petitioners. The docket numbers,

petitioners, and years in issue are as follows:

Docket No. Petitioner Year(s)

3405-05L Robert & Ines M. Gillespie 1996, 1997,
1998
3489-05L Robert E. Gillespie Asset 1996, 1997,
Management Trust, 1998, 1999
Robert E. Gillespie, Trustee
3490-05L Robert E. & Ines M. Gillespie 1999

At the time the petitions were filed, all of the petitioners

resided in Wabash, Indiana.

The parties to each case have entered into a stipulation of

settled issues agreeing, among other things, that Appeals’

determination that respondent might proceed with the collection

activities in question in that case should be sustained. The

only issues remaining for our decision are the penalties and

costs mentioned above. Following the call of these cases from

the calendar for the trial session of the Court at Las Vegas,

Nevada, commencing on February 27, 2006 (the Las Vegas trial
 - 4 -

session), we ordered petitioners in each case to show cause in

writing why a penalty should not be imposed on them pursuant to

section 6673(a)(1), and we ordered Mr. Jones and Ms. Lacorte to

show cause why in each case excess costs should not be imposed on

them pursuant to section 6673(a)(2). We also ordered respondent

to inform the Court of his (1) fees and costs incurred in these

cases and (2) positions with respect to the penalties and costs

at issue. We explained to the parties and to counsel that our

orders to show cause were motivated by our concern that

petitioners had raised, and counsel had abetted them in raising,

meritless arguments that had served merely to delay the

collection of taxes owing. In addition to ordering petitioners

and counsel to respond in writing to our orders to show cause, we

accorded each the opportunity to appear and be heard.

Tax Liabilities

On April 13, 2001, respondent issued to petitioners Robert

and Ines M. Gillespie (the Gillespies) a notice of deficiency

with respect to their joint 1996 through 1998 Federal income

taxes, and, on May 9, 2003, respondent issued to them a notice of

deficiency with respect to their 1999 Federal income tax. On

April 13, 2001, respondent issued to petitioner Robert E.

Gillespie Asset Management Trust, Robert E. Gillespie, trustee

(the trust and the trustee, respectively), a notice of deficiency

with respect to the trust’s 1996 through 1998 Federal income
 - 5 -

taxes, and, on May 9, 2001, respondent issued to the trustee a

notice of deficiency with respect to the trust’s 1999 Federal

income tax. No petitions were filed in this Court in response to

any of those notices of deficiency, and respondent properly

assessed the deficiencies determined in each case.

Notices

On March 22, 2004, respondent sent to the Gillespies with

respect to their 1999 tax year a Final Notice – Notice of Intent

to Levy and Notice of Your Right to a Hearing (final notice). On

March 29, respondent sent to the trustee with respect to the

trust’s 1996 through 1999 tax years a final notice.

On April 9, 2004, respondent sent to the Gillespies with

respect to their 1996 through 1999 tax years a Notice of Federal

Tax Lien Filing and Your Right to a Hearing Under IRC 6320

(NFTL). On that same date, respondent sent to the trustee with

respect to the trust’s 1996 through 1999 tax years an NFTL.

Responses and Hearing

On April 27, 2004, in response to the final notice they had

received, the Gillespies filed with Appeals an Internal Revenue

Service (IRS) Form 12153, Request for a Collection Due Process

Hearing. On the Form 12153, the Gillespies stated their

disagreement with the final notice as follows: “We disagree with

the determination of the taxes and additions owed, and the

calculations of the amounts due, if any.” On May 13, 2004, in
 - 6 -

response to the two NFTLs they had received, the Gillespies filed

with Appeals a second Form 12153. They stated their disagreement

with the NFTLs in the same terms they had used to disagree with

the final notice. On April 27, 2004, in response to both the

final notice and the NFTL he had received, the trustee filed with

Appeals a Form 12153. He stated his disagreement with the final

notice and the NFTL in the same terms the Gillespies had used.

Mr. Jones signed all of the Forms 12153 as petitioners’

authorized representative.

On August 24 and 26, 2004, in response to the Forms 12153,

an Appeals employee, Settlement Officer Catherine H. Watkins (the

settlement officer), sent Mr. Jones similar letters scheduling

hearings to be held on September 22, 2004, by telephone. In her

letters, the settlement officer stated that, at the hearing,

petitioners could discuss, among other things, collection

alternatives. She instructed Mr. Jones that, for her to consider

collection alternatives, including an offer-in-compromise,

petitioners would have to (1) file returns for 2001, 2002, 2003,

and, for the trust, 2000, which IRS records indicated had not

been filed, and present her with signed copies, and (2) provide

her with completed collection information statements. She

enclosed the required forms and asked Mr. Jones to send her the

items within 14 days of the date of the letter.
 - 7 -

On September 21, 2004, Victoria Osborn (Ms. Osborn) faxed

two similar letters from Mr. Jones’s office to the settlement

officer: “[T]o provide you with the information the taxpayer

wants considered regarding the proposed collection action.” In

pertinent part, the letters state that (1) the assessments of

taxes for 1996 and 1997 were untimely and (2) petitioners are

considering collection alternatives for 1998 and 1999 but require

additional documentation. The letters ask for a copy of the

“Administrative/Examination File for 1999”, the “ICS History”,

and the statutory notice of deficiency and proof of its mailing.

On September 22, 2004, at the time scheduled for the

hearing, the settlement officer telephoned petitioners’ counsel’s

office. Someone in the office conveyed a message to her from

petitioners’ counsel that the correspondence received on the

previous day was to serve as the hearing.

Determinations

On January 14, 2005, Appeals issued a “Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330” (notice) with respect to each of the Forms 12153.

The notices sustain the filing of all of the liens and all of the

proposed levy actions. Each notice is accompanied by an

attachment, wherein the settlement officer sets forth the

analysis leading to her conclusion that the collection actions

should be sustained. The analysis in each attachment is similar,
 - 8 -

and the following are among the facts, generally similar in each

attachment, on which the settlement officer relied: She had no

prior involvement with the taxes at issue; she had furnished

petitioners with copies of IRS Forms 4340, Certificate of

Assessments, Payments, and Other Specified Matters, which explain

and document the tax assessments for the years in issue;

petitioners had not presented any acceptable collection

alternatives, any financial information in order to consider

collection alternatives, and had not filed all required tax

returns; the proposed collection action balances the need for

efficient collection with petitioners’ concern that any

collection action be no more intrusive than necessary; and

applicable laws and administrative procedures were met. She

discusses in detail why the assessments of tax for 1996 and 1997

were timely. She also warns petitioners that they “should be

advised that unfounded allegations of procedural defects may be

construed as frivolous Collection Due Process appeals and may be

subject to monetary sanctions by the Tax Court under IRC Section

6673(a)(1).”

Petitions

On February 22, 2005, petitioners timely petitioned for

review of the notices. Each petition assigns error in

substantially the same terms. Except as noted, each (1) seeks to

challenge the tax liability underlying the collection actions at
 - 9 -

issue; (2) submits that there are impermissible “whipsaws” with

related entities or persons; (3) submits that the settlement

officer did not make a determination from petitioners’ tax

returns; (4) claims the settlement officer did not allow them to

raise collection alternatives, including an offer-in-compromise;

(5) claims the settlement officer did not allow sufficient time

for them to retrieve IRS documentation “from their IMF

transcripts-specific”; (6) alleges that the notice does not

comply with administrative rules, regulations, and statutes

because it contains no facts, does not contain a certificate of

compliance by the settlement officer, and is not signed or

attested to by the settlement officer; (7) in docket No. 3489-

05L, alleges that the period of limitations expired for the 1996

and 1997 tax years; and (8) in docket Nos. 3405-05L and 3490-05L,

claims “innocent spouse protection” for Mrs. Gillespie. Mr.

Jones executed each petition on behalf of the named petitioner.

Respondent answered the petitions, denying or otherwise

countering those claims.

The petitions are substantially similar to petitions filed

by Mr. Jones on behalf of taxpayers in at least eight other

cases, six of them calendared for trial at the Las Vegas trial

session. Five of those cases are the subject of our report in

Davis v. Commissioner, released today as T.C. Memo. 2007-201.
 - 10 -

Ms. Lacorte’s Appearance

On November 15, 2005, Ms. Lacorte filed an entry of

appearance in each case.

Amended Petitions

On December 16, 2005, approximately 2-1/2 months before

commencement of the Las Vegas trial session, petitioners all

moved for leave to amend petition. Those motions are signed by

Mr. Jones and Ms. Lacorte. The accompanying amended petitions

were lodged with the Court on the same date, and, on December 19,

2005, we ordered respondent to respond to the motions for leave

to amend. On January 17, 2006, respondent informed the Court

that he had no objection to our granting the motions. On January

19, 2006, we granted all of the motions, and we filed the amended

petitions. Mr. Jones executed each amended petition on behalf of

the named petitioners.

In each amended petition, petitioners aver numerous

instances of abuse of discretion by the settlement officer; viz,

(1) She did not give petitioners adequate time to make their

case, including raising collection alternatives, such as an

offer-in-compromise; (2) she failed to provide petitioners a copy

of their individual master file and other relevant documentation;

(3) the period of limitations had expired for the 1996 and 1997

tax years; (4) the settlement officer was biased against

petitioners because of their use of the trust system; (5) there
 - 11 -

are impermissible “[whipsaws]” with related entities or

individuals; and (6) in docket Nos. 3405-05L and 3490-05L, Mrs.

Gillespie is entitled to “innocent spouse protection”. In each

case, respondent denied those averments.

The amended petitions are substantially similar to petitions

filed by Mr. Jones on behalf of taxpayers in at least six other

cases calendared for trial at the Las Vegas trial session. Five

of those cases are the subject of our report in Davis v.

Commissioner, supra.

Motions for Summary Judgment

On January 17, 2006, respondent moved for summary judgment

in each of the cases. Respondent relied on similar grounds in

support of each motion: Since petitioners had received a notice

of deficiency with respect to the underlying liability or

liabilities (without distinction, liability), they could not

challenge the liability. The settlement officer did not abuse

her discretion in not considering collection alternatives since

petitioners had not presented any collection alternatives.

Indeed, the settlement officer was precluded from considering

collection alternatives since petitioners had failed to satisfy

the necessary prerequisites for such consideration; i.e., they

had neither provided the settlement officer the requisite

collection information nor had they filed their delinquent tax

returns. The settlement officer had accorded petitioners
 - 12 -

adequate time to participate in and complete a proper hearing.

Petitioners’ claim that they did not have sufficient time to

retrieve IRS documentation fails to raise any relevant issue. A

settlement officer is not required to produce any documents at a

section 6330 hearing. Petitioner Ines M. Gillespie had failed in

docket Nos. 3405-05L and 3490-05L to raise an innocent spouse

claim either on the Form 12153 or at any time during the

administrative process, and, for that reason, she could not raise

that claim in these proceedings. There is no merit to

petitioners’ claim that any assessment is untimely. Petitioners’

claim that the settlement officer was biased against them because

of their use of the trust system is frivolous and

unsubstantiated. No other error assigned by petitioners raises

any justiciable issue or shows any abuse of discretion by the

settlement officer.

Petitioners’ Objections

On February 6, 2006, petitioners all filed objections to the

motions for summary judgment. None of petitioners disputed that

they failed to present collection alternatives. In each case,

they argued that the settlement officer had not given them

adequate time to make their case and they had required additional

information to prepare collection alternatives and to resolve

other issues relating to the years at issue. In docket No. 3405-

05L, petitioners argued that the assessment of tax for 1997 was
 - 13 -

backdated. Mr. Jones and Ms. Lacorte signed all of the

objections.

Orders Disposing of Motions for Summary Judgment and Motion for
Penalty

On February 15, 2006, we issued orders granting in full the

motions for summary judgment in docket Nos. 3489-05L and 3490-05L

and granting in part the motion for summary judgment in docket

No. 3405-05L. In substantial part, the orders are similar. In

each, we concluded that petitioners were prohibited from

challenging the underlying liability. We concluded that the

settlement officer did not abuse her discretion in failing to

consider collections alternatives since, although given adequate

time to do so, petitioners had failed to present collection

alternatives or provide the collection information and delinquent

returns that are a prerequisite to Appeals’ consideration of

collection alternatives. We rejected petitioners’ claim that the

settlement officer was required to provide them copies of their

individual master file and other documents. We cited the

following authority specifically holding that an Appeals officer

is not required to produce that type of information. Nestor v.

Commissioner, 118 T.C. 162, 166-167 (2002); Lunsford v.

Commissioner, 117 T.C. 183, 187-188 (2001); Carrillo v.

Commissioner, T.C. Memo. 2005-290. We found petitioners’ claim

of bias to be frivolous and unsubstantiated. In docket Nos.

3489-05L and 3490-05L, we rejected petitioners’ affirmative
 - 14 -

defenses of the statute of limitations because, in the first

case, we deemed petitioners to have conceded that defense by not

addressing it in their objection to respondent’s motion for

summary judgment and, in the second case, the claim did not deal

with the year at issue in the case. In docket No. 3405-05L, we

rejected a similar claim with respect to 1996 because we deemed

petitioners likewise to have conceded the claim. We did,

however, deny in part respondent’s motion for summary judgment in

docket No. 3405-05L because of petitioners’ statute of

limitations claim for 1997. Petitioners claimed that respondent

had backdated the assessment of tax for that year, and as a

result, collection of the tax was time barred. Petitioners

supported their claim of backdating by an argument concerning the

“cycle post date” of the assessment. Since that argument was

unclear, but we were concerned that it might involve a material

issue of fact, we declined to adjudicate summarily petitioners’

statute of limitations claim for 1997.

In each of the orders we issued in response to the motions

for summary judgment, we warned petitioners and counsel that we

were considering the imposition of penalties on petitioners

pursuant to section 6673(a)(1) and excess costs on counsel

pursuant to section 6673(a)(2). In those orders, we stated our

impressions that petitioners, aided by counsel, may have (1)

instituted and maintained the proceeding before this Court
 - 15 -

primarily to delay the collection of their income tax liability,

(2) in support of that goal, raised frivolous arguments and

relied on groundless claims, and (3) unreasonably failed to

pursue their opportunity for a section 6330 hearing. We

cataloged our concerns with respect to petitioners generally as

follows: They had not challenged respondent’s statements in

support of the motion for summary judgment that petitioners

received a notice of deficiency and failed to petition the Tax

Court; they had failed to present the settlement officer any

collection alternatives or the financial information necessary to

consider collection alternatives; and, in the amended petition,

they had made claims that had little or no substance, all but one

of which (in docket No. 3405-05L) we had rejected. We also noted

the similarity of the amended petitions to petitions filed by

counsel in other cases calendared for trial at the Las Vegas

trial session and the shortness of the period between filing

those amended petitions and the start of the trial session. We

expressed our skepticism with respect to the “cycle post date”

argument made in support of the statute of limitations defense in

docket No. 3405-05L, stating our suspicion, based on the

rejection of the same or a similar argument in Dahmer v. United

States, 90 AFTR 2d 2002-6804, 2002-2 USTC par. 50,806 (W.D. Mo.

2002) (Magistrate Judge’s order), that the argument was

frivolous. In docket Nos. 3489-05L and 3490-05L, the cases in
 - 16 -

which we granted respondent’s motions for summary judgment in

full, we ordered petitioners and counsel to appear and be

prepared to show cause during the Las Vegas trial session why a

penalty and excess costs should not be imposed on them,

respectively. In docket No. 3405-05L, we left the penalty and

cost issues for later resolution.

The Las Vegas Trial Session

At the call of these cases from the calendar for the Las

Vegas trial session, the parties to each case informed the Court

that they had agreed to a settlement sustaining Appeals’

determination that respondent may proceed with the collection

activities in question. In anticipation of receiving written

agreements so stipulating, the Court stated that, following

receipt of those agreements, the Court would vacate our orders

granting in whole or in part the motions for summary judgment.

We have received those agreements, and we have vacated those

orders. At the Las Vegas trial session, we accorded each

petitioner and counsel the opportunity to appear and be heard

with respect to our orders to show cause why we should not impose

on petitioners a penalty pursuant to section 6673(a)(1) and

impose on counsel excess costs pursuant to section 6673(a)(2).

None of the petitioners appeared. Petitioner Robert E.

Gillespie submitted his declaration stating in salient part that

he was 80 years old and too ill to travel. The parties agreed to
 - 17 -

the following stipulation: Ms. Osborn is a forensic accountant;

she is not recognized as an enrolled agent before the IRS, she

reviewed petitioners’ records and advised counsel for petitioners

that the assessments were time barred.

Both Mr. Jones and Ms. Lacorte were accorded the opportunity

to be heard with respect to our orders to show cause why excess

costs should not be imposed on them pursuant to section

6673(a)(2), but each preferred to respond to our orders in

writing.

Discussion

I. Introduction

Section 6673(a) provides for the imposition of sanctions and

the award of costs in Tax Court proceedings. In pertinent part,

the provision provides:

SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.

(a) Tax Court Proceedings.--

(1) Procedures instituted primarily for
delay, etc.–-Whenever it appears to the Tax Court
that--

(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,

(B) the taxpayer’s position in such
proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably
failed to pursue available
administrative remedies,
 - 18 -

the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not in
excess of $25,000.

(2) Counsel’s liability for excessive
costs.–-Whenever it appears to the Tax Court that
any attorney or other person admitted to practice
before the Tax Court has multiplied the
proceedings in any case unreasonably and
vexatiously, the Tax Court may require--

(A) that such attorney or other person
pay personally the excess costs, expenses,
and attorneys’ fees reasonably incurred
because of such conduct * * *

II. Section 6673(a)(1) Liability of Petitioners

A. Positions of the Parties

Respondent’s position is that we should impose a penalty

upon petitioners for advancing frivolous arguments and making

groundless claims and for instituting proceedings primarily for

delay. Respondent acknowledges petitioner Robert E. Gillespie’s

declaration that he was too ill to travel; nevertheless, argues

respondent, neither the declaration nor any other evidence

establishes any reasons why sanctions should not be imposed, and

there are no mitigating factors in the record. Respondent does

point out that Mr. Jones and Ms. Lacorte represented several

unrelated taxpayers in unrelated cases on the Las Vegas trial

calendar and, in those unrelated cases, Mr. Jones and Ms. Lacorte

made arguments similar to the frivolous arguments and groundless

claims advanced in these cases. Respondent states: “The conduct

of Mr. Jones and Ms. Lacorte in these other unrelated cases may
 - 19 -

suggest that petitioners relied heavily on the advice of their

counsel and may not have known about the nature of the legal

arguments advanced by counsel.”

Petitioners filed responses to the Court’s orders to show

cause. They all argue that the standard for imposition of a

penalty under section 6673 is bad faith, and bad faith does not

encompass nonfrivolous arguments. They catalog both identical

errors in, and defenses to, the settlement officer’s

determination that respondent may proceed with his collection

actions; viz, (1) the affirmative defense of statute of

limitations, (2) the imposition of double taxation, or “whipsaw”,

(3) an innocent spouse claim, (4) the presentation of collection

alternatives, including an offer-in-compromise, (5) the

settlement officer’s failure to provide requested documents, and

(6) the settlement officer’s failure to accord them adequate time

to perfect their defense. They argue that sanctions are not

applicable to good faith efforts by taxpayers and their counsel

to reach agreement with the IRS. Finally, they appear to argue

that, notwithstanding the receipt of a statutory notice of

deficiency, a taxpayer is entitled to raise the underlying tax

liability in a section 6330 hearing.

B. Discussion

We shall impose section 6673(a)(1) penalties on petitioners

in each case before us. We shall do so because we believe that
 - 20 -

petitioners instituted and have maintained the proceedings in

those cases primarily for delay. We further believe that, in

support of that goal, in each case, they raised frivolous

arguments and relied on groundless positions. We have on more

than one occasion during these proceedings stated our concern

that petitioners had raised meritless arguments that served

merely to delay the collection of tax. We accorded petitioners

both a hearing and the opportunity to respond in writing to our

concerns. Neither by petitioner Robert E. Gillespie’s

declaration nor by petitioners’ written responses to our orders

to show cause have petitioners shown us the merit of any

averment, claim, or argument advanced by them.2 In our orders

2
Unsupported by any citation of authority, petitioners
claim that the standard for imposition of a penalty under sec.
6673(a)(1) is bad faith. In Takaba v. Commissioner, 119 T.C.
285, 294 n.2 (2002), we observed:

There is some question whether it is necessary for
a court to find that a taxpayer acted in bad faith in
order to impose a penalty on him under sec.
6673(a)(1)(B) for putting forth a frivolous or
groundless position. Compare Branch v. I.R.S., 846
F.2d 36, 37 (8th Cir. 1988) (“A taxpayer’s asserted
good faith is not relevant to the assessment of
frivolous return [sec. 6702] penalties.”) with May v.
Commissioner, 752 F.2d 1301, 1306 (8th Cir. 1985)
(“showing of willfulness, or lack of good faith, is
required [for sec. 6673(a)(1) damages]”).

We have not, however, required a showing of bad faith before
imposing a sec. 6673(a)(1)(B) penalty, see, e.g., Bean v.
Commissioner, T.C. Memo. 2006-88; Holmes v. Commissioner, T.C.
Memo. 2006-80; Wetzel v. Commissioner, T.C. Memo. 2005-211, and
do not believe that to be a requirement of the statute.
(continued...)
 - 21 -

disposing of the motions for summary judgment, we addressed each

item in the catalog of errors and defenses presented in

petitioners’ written responses, and, except with respect to the

affirmative defense of the statute of limitations (with respect

to which, in docket No. 3405-05L, we withheld judgment), we found

that none raised any issue that demonstrates error or abuse of

discretion on the part of the settlement officer. We incorporate

herein by this reference those findings and the analyses

supporting them (summarized supra in our background discussion).

With respect to their affirmative defenses of the statute of

limitations, petitioners apparently rely only on the stipulated

fact that Ms. Osborn reviewed petitioners’ records and advised

counsel for petitioners that the assessments were time barred.

The parties have also stipulated that Ms. Osborn is a forensic

accountant and she is not recognized as an enrolled agent before

the IRS. Ms. Osborn did not testify in these cases. Ms. Osborn

did, however, testify in other consolidated cases heard at the

Las Vegas trial session. She testified to nothing more

2
(...continued)
Moreover, we believe that the Court of Appeals for the Seventh
Circuit, where, barring a stipulation to the contrary, any appeal
by petitioner would lie, see sec. 7482(b), would agree. See
Coleman v. Commissioner, 791 F.2d 68, 71-72 (7th Cir. 1986) (“The
purpose of §§ 6673 and 6702, like the purpose of Rules 11 and 38
[Fed. R. Civ. P. and Fed. R. App. P., respectively] and of [28
U.S.C.] § 1927, is to induce litigants to conform their behavior
to the governing rules regardless of their subjective beliefs.”).
 - 22 -

remarkable than that, after an assessment of tax is made, record

of that assessment is posted to the IRS’ computerized record

system. Davis v. Commissioner, T.C. Memo. 2007-201. Ms.

Osborn’s theory that assessment predating posting indicates

something fraudulent was rejected by the court in Dahmer v.

United States, 90 AFTR 2d 2002-6804, 2002-2 USTC par. 50,806

(W.D. Mo. 2002), in a ruling that accepted the Government’s

position that

the Dahmers’ evidence that the June 25, 1993[,]
assessment was entered into the IRS administrative
computer records in October 1993 provided no evidence
of fraud because an assessment occurs on the date an
authorized official signs a summary record of
assessment containing the taxpayer’s assessment rather
than the date the assessment is posted to the IRS
computerized record system. * * *

Indeed, petitioners neglect even to discuss Ms. Osborn or her

“cycle post date” theory in their written responses to our orders

to show cause, which suggests to us that they no longer attach

any value to her testimony or theory. See Nicklaus v.

Commissioner, 117 T.C. 117, 120 n.4 (2001) (concluding that

taxpayers abandoned arguments and contentions asserted prior to

the filing of their brief where they failed to advance those

arguments and contentions on brief). We see no merit in the

affirmative defense.

Petitioners’ inability to show the merit of any averment,

claim, or argument advanced by them leads us to the conclusion

that they initiated and have maintained these proceedings
 - 23 -

primarily for delay, and we so find. A taxpayer’s good faith

reliance on the advice of counsel is not a defense to the

imposition of a penalty under section 6673(a)(1)(B), nor need we

excuse a taxpayer’s failure to review pleadings and other

documents filed on his behalf. The purpose of section 6673 is to

compel taxpayers to think and to conform their conduct to settled

principles before they file returns and litigate. Takaba v.

Commissioner, 119 T.C. 285, 295 (2002); see also Coleman v.

Commissioner, 791 F.2d 68, 71 (7th Cir. 1986). Indeed,

petitioners were warned by the settlement officer that, by

asserting unfounded allegations of procedural defects, they

risked exposure to penalties under section 6673(a)(1).

Not only do we determine that petitioners are deserving of a

penalty for conduct that violates section 6673(a)(1)(A) and (B),

but we believe that they are deserving of a penalty pursuant to

section 6673(a)(1)(C) for unreasonably failing to pursue

available administrative remedies. As summarized in our

background discussion under the heading Determinations,

petitioners neither proposed any collection alternatives nor

provided the settlement officer the financial information

necessary to consider collection alternatives. Assuming that

they had a case to make to the settlement officer, petitioners

did not act reasonably in presenting less than their full case to

her during the administrative process.
 - 24 -

C. Conclusion

Taking into account respondent’s position, we shall make

absolute our orders to show cause in these cases and impose on

petitioners in each case a penalty pursuant to section 6673(a)(1)

in the amount of $5,000 (for a total, in all three cases, of

$15,000).

III. Section 6673(a)(2) Liability of Counsel for Excessive Costs

A. Positions of the Parties

Respondent’s position is that we should impose excess costs

on counsel pursuant to section 6673(a)(2). Respondent argues

that, on behalf of their clients, counsel made only frivolous

arguments and advanced only groundless claims, and they did so

knowingly or, at least, recklessly. Respondent claims that at no

point in these proceedings have they shown the merit of any

argument or claim made by them on behalf of petitioners.

Respondent focuses on Mr. Jones’s perseverance in challenging

petitioners’ underlying tax liabilities notwithstanding the clear

language of section 6330(c)(2)(B) prohibiting such challenges to

taxpayers who have received notices of deficiency and the well-

defined caselaw interpreting that section. Respondent notes that

the motions to amend petitions were filed less than 2 months

before the start of the Las Vegas trial session and the amended

petitions contain only additional claims that were all determined

to be meritless by the Court. Respondent implies that counsel
 - 25 -

filed the motions only to vex respondent. Respondent argues that

the lack of citation to relevant legal authorities in the

oppositions to the motions for summary judgment signed by both

Mr. Jones and Ms. Lacorte indicates their lack of legal research

or their willful disregard of adverse authority. Respondent

concludes:

Mr. Jones’ entire conduct in this case constitutes
bad faith, in that he knowingly or recklessly filed
petitions, motions for leave to amend petitions,
amended petitions, and oppositions to respondent’s
summary judgment motions that raised nothing but
frivolous, groundless, or statutorily precluded
arguments. Ms. Lacorte’s involvement was limited to
participation in the filing of motions for leave to
amend petition and oppositions to respondent’s summary
judgment motions.

Respondent claims that he incurred excessive costs of $12,798 in

litigating all of these cases and asks payment in that amount.

Alternatively, if we do not impose excess costs on Mr. Jones

and Ms. Lacorte under section 6673(a)(2), respondent asks that we

sanction both individuals under Rule 33(b), which sets standards

in connection with counsel’s signature on a pleading and provides

that counsel may be sanctioned for failure to meet those

standards.

Mr. Jones and Ms. Lacorte advance as their own defense the

arguments made on behalf of petitioners. They also claim errors

in respondent’s calculation of his costs. Mr. Jones states that,

at all times relevant to these cases, Ms. Lacorte was his

employee, subject to his direction and advice, and is in no way
 - 26 -

responsible for the decisions made in connection with the

initiation or prosecution of these cases. Ms. Lacorte agrees

with that description of her relationship to Mr. Jones.

B. Discussion

1. Introduction

We accept that Mr. Jones is principally responsible for the

decisions of counsel made in these cases and Ms. Lacorte, his

employee, at all times worked under his direction and control.

We shall hold only Mr. Jones financially responsible for the

excessive costs we determine.

2. Requirements for an Award of Excess Costs

Section 6673(a)(2) plainly imposes three prerequisites to an

award of excess costs. First, the attorney or other practitioner

(without distinction, attorney) must engage in “unreasonable and

vexatious” conduct. Second, that “unreasonable and vexatious”

conduct must be conduct that “multiplies the proceedings.”

Finally, the dollar amount of the sanction must bear a financial

nexus to the excess proceedings; i.e., the sanction may not

exceed the “costs, expenses, and attorneys' fees reasonably

incurred because of such conduct.” See Amlong & Amlong, P.A. v.

Denny's, Inc., 457 F.3d 1180, 1190 (11th Cir. 2006) (with

reference to the analogous language of 28 U.S.C. sec. 1927).
 - 27 -

3. Unreasonable and Vexatious Conduct

The purpose of section 6673(a)(2) is to penalize an attorney

for his misconduct in unreasonably and vexatiously multiplying

the proceedings. Congress has not, however, specified the degree

of culpability that an attorney must exhibit before we may

conclude that his conduct in multiplying the proceedings is

unreasonable and vexatious. See, e.g., Takaba v. Commissioner,

119 T.C. at 296-298. The language of section 6673(a)(2) is

substantially identical to that of 28 U.S.C. sec. 1927 (the two

provisions serving the same purpose in different forums), and we

have relied on caselaw under the latter to ascertain the degree

of culpability necessary to make an award under the former.

Takaba v. Commissioner, supra at 296-297. While most of the

United States Courts of Appeals have required a showing of bad

faith before awarding costs under 28 U.S.C. sec. 1927, a few have

required only a showing of recklessness, a lesser degree of

culpability. Id. at 297. Among those few is the Court of

Appeals for the District of Columbia Circuit. See Reliance Ins.

Co. v. Sweeney Corp., 792 F.2d 1137, 1138 (D.C. Cir. 1986). The

venue for appeal of any award of costs imposed on Mr. Jones may

be the Court of Appeals for the District of Columbia Circuit.

See sec. 7482(b)(1) (second sentence); Takaba v. Commissioner,

supra. If not, it may be the Court of Appeals for the Seventh

Circuit. See sec. 7482(b)(1)(A). The Court of Appeals for the
 - 28 -

Seventh Circuit has held that a finding of bad faith is necessary

before an attorney may be sanctioned under section 6673(a)(2).

Johnson v. Commissioner, 289 F.3d 452, 456 (7th Cir. 2002), affg.

116 T.C. 111 (2001). The Court of Appeals added, however, that

bad faith under section 6673(a)(2) is not a subjective concept:

“‘reckless’ or ‘extremely negligent’ conduct will satisfy it.”

Id. Because we are unsure of appellate venue, and because we

find that Mr. Jones’s conduct would constitute bad faith under

the Court of Appeals for the Seventh Circuit’s test for bad

faith, we shall for purposes of this case (and without deciding

the standard in this Court), adopt that standard. See Takaba v.

Commissioner, supra at 298.

We believe that Mr. Jones intentionally abused the judicial

process by bringing and continuing these cases on behalf of

petitioners knowing their claims to be without merit. In support

of our determination to impose a section 6673(a)(1) penalty on

petitioners, we found that they initiated and maintained these

proceedings primarily for delay and, in support of that goal,

raised frivolous arguments and relied on groundless positions.

In other words, petitioners present no meritorious claims.

Moreover, we have no doubt that Mr. Jones has known all along

that petitioners’ claims lack merit. We have no doubt of that

because of Mr. Jones’s candor in responding to the orders to show

cause. In those responses, Mr. Jones admits that, while, on
 - 29 -

average, the cases he brings have merit, some do not:

The Orders to Show cannot be properly answered in
the context of analysis of individual issues raised on
appeal from CDP [sec. 6330] hearings. This is true
because there are some “L” [sec. 6330] case docket
numbers which standing alone do not have appealable
issue[s]. However, in conjunction with other related
“L” case docket numbers, and sometimes statutory notice
of deficiency docket numbers[, they] have sufficient
appealable issues, and “hazards of litigation” which
justify settlement of all docket numbers before the
Court[,] as agreed upon by petitioners, their counsel,
and the IRS Office of Chief Counsel acting on behalf of
respondent.

All the amended petitions raise substantially the same issues.

If Mr. Jones believed that those issues were “appealable issues”,

by which term we assume that he means meritorious issues, then

there would be no reason for him to make his probabilistic

argument; i.e., while some of my cases have no merit, some do, so

that, on average, all of my cases have merit, and each is

entitled to a portion of some wholesale settlement. That Mr.

Jones does indeed take a wholesale approach to representing

clients before this Court is supported by his request that we

take notice that, during the three trial sessions of the Tax

Court in Las Vegas, Nevada, between December 2004 and February

2006, Mr. Jones and his clients settled 67 cases, agreeing to

make payments of $2,564,788 with respect to $11,067,835 of

claimed liabilities.3

3
That Mr. Jones takes a wholesale approach in representing
clients before the Court is also evidenced by the fact that he
(continued...)
 - 30 -

A difficulty with Mr. Jones’s wholesale approach, and the

reason we believe that he intentionally abused the judicial

process, is that, in taking that approach, Mr. Jones violated the

well-known duty of an attorney before this Court to insure that

there is merit to every case that he brings before the Court.

That duty is imposed on Mr. Jones both by our Rules and by the

ABA Model Rules of Professional Conduct (Model Rules), which, by

Rule 201(a), govern his practice before this Court.4

In pertinent part, Rule 33(b) provides:

(b) Effect of Signature: The signature of counsel
* * * constitutes a certificate by the signer that the
signer has read the pleading; that, to the best of the
signer's knowledge, information, and belief formed
after reasonable inquiry, it is well grounded in fact
and is warranted by existing law or a good faith
argument for the extension, modification, or reversal
of existing law; and that it is not interposed for any
improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of
litigation. * * * If a pleading is signed in violation
of this Rule, the Court, upon motion or upon its own
initiative, may impose upon the person who signed it *
* * an appropriate sanction, which may include an order
to pay to the other party or parties the amount of the

3
(...continued)
made the same probabilistic argument in Davis v. Commissioner,
T.C. Memo. 2007-201.
4
The Court of Appeals for the Seventh Circuit has held
that a showing of objective bad faith (i.e., recklessness or
extreme negligence) is all that is necessary to impose costs on
an attorney under sec. 6673(a)(2). Johnson v. Commissioner, 289
F.3d 452, 456 (7th Cir. 2002), affg. 116 T.C. 111 (2001). If Mr.
Jones were to claim a lack of familiarity with our rules of
practice and the ABA Model Rules of Professional Conduct, we
would conclude that he acted recklessly in representing
petitioners before the Court in ignorance of applicable rules.
 - 31 -

reasonable expenses incurred because of the filing of the
pleading, including reasonable counsel’s fees.

The effect of a signature on a motion is the same as the effect

of a signature on a pleading. Rule 50(a).

In pertinent part, Model Rules 3.1 states: “A lawyer shall

not bring or defend a proceeding, or assert or controvert an

issue therein, unless there is a basis in law and fact for doing

so that is not frivolous, which includes a good faith argument

for an extension, modification or reversal of existing law.”

Mr. Jones has signed pleadings and other papers to bring and

defend these proceedings knowing petitioners’ claims to be

meritless.5 He has done so in violation of our Rules and the

Model Rules and, thus, has intentionally abused the judicial

process. If by that conduct he has multiplied the proceedings,

he is deserving of sanctions for unreasonably and vexatiously

multiplying the proceedings within the meaning of section

6673(a)(2). See Johnson v. Commissioner, supra.

4. Multiplication of the Proceedings

These proceedings should never have been brought. All of

respondent’s costs are, thus, in a sense, excessive. There is,

however, some disagreement among the Courts of Appeals in

interpreting 28 U.S.C. sec. 1927 as to whether it is only

5
The pleadings and papers we have in mind are the
petitions, motions for leave to amend petition, amended
petitions, and objections to the motions for summary judgment.
 - 32 -

possible to multiply, or prolong, the proceedings after a case

has been initiated; presumably because an attorney cannot begin

to multiply the proceedings until some proceeding has come into

existence for the attorney to multiply. Compare Moore v. Keegan

Mgmt. Co., 78 F.3d 431, 435 (9th Cir. 1996) (28 U.S.C. sec. 1927

“applies only to unnecessary filings and tactics once a lawsuit

has begun”), with In re TCI Ltd., 769 F.2d 441, 448 (7th Cir.

1985) (under 28 U.S.C. sec. 1927, trial judge “had the authority

to award the fees incurred right from the beginning”). We have

not addressed the analogous issue under section 6673(a)(2), and

we are not compelled to do so today since, with respect to

respondent’s costs incurred in responding to the first pleadings

(i.e., answering the petitions), there is adequate basis under

Rule 33(b) for imposing upon Mr. Jones respondent’s reasonable

expenses, including reasonable counsel’s fees, incurred in

answering those pleadings.

The text of Rule 33(b) is set forth supra. By signing a

pleading, the signer certifies, among other things, that, after a

reasonable inquiry, he has concluded that, to the best of his

knowledge, the pleading is well grounded in fact and law. The

signer must inquire into both the facts and the law at the time

the pleading is filed. Versteeg v. Commissioner, 91 T.C. 339,

342 (1988). Mr. Jones does not argue that he made a reasonable

inquiry that led to his erroneous conclusion that petitioners’
 - 33 -

claims had merit. Indeed, we have concluded that he signed the

petitions knowing that they lacked merit. Mr. Jones signed the

petitions in violation of Rule 33(b) and is deserving of a

sanction on account thereof.

5. Excess Costs

Attorney's fees awarded under section 6673(a)(2) are to be

computed by multiplying the number of excess hours reasonably

expended on the litigation by a reasonable hourly rate. Takaba

v. Commissioner, 119 T.C. at 303. The product is known as the

“lodestar” amount. Id. To assist us in computing the lodestar

amount, respondent has provided us with the declarations of

attorneys Alan J. Tomsic, Wesley J. Wong, and Paul C. Feinberg

(Messrs. Tomsic, Wong, and Feinberg, respectively, and the

Tomsic, Wong, and Feinberg declarations, respectively). Attached

to the Tomsic and Wong declarations are copies of reports

generated from respondent’s internal time keeping records showing

the number of hours expended on these cases by Messrs. Tomsic and

Wong. Although the Feinberg declaration includes the number of

hours he expended on these cases, he does not provide reports

similar to those provided by Messrs. Tomsic and Wong, declaring

that he does not keep detailed records by individual case number

for time he spends in a supervisory capacity. Messrs. Tomsic and

Wong, explicitly, and Mr. Feinberg, by inference, calculate their

time expended working on these cases from their first contacts
 - 34 -

with the cases; i.e., for Mr. Tomsic, from review of the case

files leading to his drafting motions to extend time to answer.

Respondent asks to be reimbursed for 12 hours of Mr.

Tomsic’s time, at $150 an hour, 72 hours of Mr. Wong’s time, at

$125 an hour, and 10 hours of Mr. Feinberg’s time, at $200 an

hour. Respondent provides the following chart showing the

allocations of hours and dollars among docket numbers.

3405-05L 3489-05L 3490-05L Total
Hours–Alan J. Tomsic 4 4 4 12
“Lodestar” amount at $600.00 $600.00 $600.00 $1,800.00
$150/hour (Tomsic)
Hours–Wesley J. Wong 22.50 25.50 24.00 72.00
“Lodestar” amount at $2,812.50 $3,187.50 $3,000 $9,000
$125/hour (Wong)
Hours–Paul C. Feinberg 3.33 3.33 3.33 9.99
“Lodestar” amount at $666.00 $666.00 $666.00 $1,998.00
$200/hour (Feinberg)
“Lodestar” amount (Total) $4,078.50 $4,453.50 $4,266.00 $12,798.00

Mr. Tomsic is the attorney who first had primary day-to-day

responsibility for these cases. He is an attorney employed in

the IRS Office of Chief Counsel in Las Vegas, Nevada. He has

been a member of one or more State bars since 1981. He is

admitted to practice before the United States Tax Court. His

declaration contains the following chart showing the hours he

spent on these cases.
 - 35 -
3405-05L 3489-05L 3490-05L Total

Reviewed case and prepared 1 1 1 3
motions to extend time
to answer

Reviewed motions for leave 1 1 1 3
to amend petition; discussed
response to such motion with
Wesley J. Wong; drafted
responses to motions for
leave to amend petition

Reviewed amended returns; 2 2 2 6
discussed with Wesley J. Wong;
began preparation of
settlement documents

Total hours 4 4 4 12

Mr. Wong is the attorney who succeeded Mr. Tomsic with

respect to primary day-to-day responsibility for these cases. He

is an attorney employed in the IRS Office of Chief Counsel in Las

Vegas, Nevada. He has been a member of one or more State bars

since 1999. He is admitted to practice before the United States

Tax Court. His declaration contains the following chart showing

the hours he spent on these cases.

3405-05L 3489-05L 3490-05L Total

Reviewed case file 1.50 1.00 1.50 4.00

Prepared and filed answers 2.50 2.00 2.50 7.00
to petition

Meeting with petitioners’ 1.00 2.00 2.00 5.00
counsel

Prepared response to motions 0.25 0.25 0.25 0.75
for leave to amend petition

Motions for summary judgment 7.75 9.75 7.75 25.25
1
Answered amended petitions -- 1.00 1.00 3.00

Researched and wrote 0.75 0.75 0.75 2.25
respondent’s pretrial
memorandum
 - 36 -
1
Prepared for and attended 8.75 8.75 8.25 24.75
Las Vegas trial session

Total hours 22.50 25.50 24.00 72.00
1
The sum of the sixth row (Answered amended petitions) should be 2
hours and the sum of the eighth row (Prepared for and attended Las Vegas trial
session) should be 25.75 hours. The correct total hours, however, is 72
hours.

Mr. Feinberg is an Associate Area Counsel in the IRS Office

of Chief Counsel in Las Vegas, Nevada. He has been in that

position since September 2002 and has been employed by the Chief

Counsel since July 1991. He has been a member of one or more

State bars since 1979. He is admitted to practice before the

United States Tax Court. His responsibilities include, among

other things, supervising the litigation of cases before the

Court. In connection with these cases, he supervised the

activities of Messr. Tomsic and Wong, and, as supervisor, he

familiarized himself with the cases, discussed handling of the

cases and issues presented, reviewed all documents that were

prepared for filing with the Court, and attended all proceedings

concerning the cases at the Las Vegas trial session. He

estimates that he spent a total of 10 hours on these cases.

Respondent claims that it is reasonable to utilize hourly

charges of $150, $125, and $200 for Messrs. Tomsic’s, Wong’s, and

Feinberg’s time, respectively, in computing the lodestar amounts

for these cases. Respondent argues that those rates are

consistent with the rates that were allowed by the Court for the
 - 37 -

Commissioner’s trial and supervisory attorneys in 2002, in Takaba

v. Commissioner, 119 T.C. at 304-305.

Mr. Jones does not question the reasonableness of the hourly

rates claimed for Messrs. Tomsic, Wong, and Feinberg. Mr. Jones

has principally two objections to the award of excess costs.

First, he objects to respondent’s claim that all of the hours

expended by his attorneys are excessive and deserving of

compensation. Second, he claims that respondent fails to

describe and substantiate the nature of the services rendered by

his attorneys.

We see no merit to either of Mr. Jones’s objections. As we

have made plain, these cases are without merit and never should

have been brought. By their declarations, Messrs. Tomsic, Wong,

and Feinberg describe adequately their activities with respect to

these cases. Messrs. Tomsic’s and Wong’s declarations are

accompanied by computer records that, we assume, were made

contemporaneously with the work performed and support their

claims. Moreover, we are familiar with the procedural and

factual history of these cases, and we believe that 12 hours was

reasonably necessary for Mr. Tomsic to do the work he describes.

We find that $150 is a reasonable hourly charge for Mr. Tomsic’s

time, and he reasonably expended 12 hours on this litigation.

The lodestar amount for Mr. Tomsic is, thus, $1,800. We believe

that 72 hours was reasonably necessary for Mr. Wong to do the
 - 38 -

work he describes. We find that $125 is a reasonable hourly

charge for Mr. Wong’s time and he reasonably expended 72 hours on

this litigation. The lodestar amount for Mr. Wong is, thus,

$9,000. We accept at face Mr. Feinberg’s descriptions of his

duty and activities and find reasonable his claim that he spent

10 hours in those activities. We find that $200 is a reasonable

hourly charge for Mr. Feinberg’s time, and he reasonably expended

10 hours on this litigation. The lodestar amount for Mr.

Feinberg is, thus, $1,998 (that is all that respondent claims).

The total lodestar amount for the time of Messrs. Tomsic and

Feinberg is $12,798. Respondent has not itemized costs for

travel expenses, photocopying, or supplies used in preparing the

cases. Respondent limits his request for costs to the total

lodestar amount. We shall require Mr. Jones to pay costs in that

amount.

C. Conclusion

We find that $12,798 is a reasonable amount for respondent's

excess attorney's fees incurred by reason of Mr. Jones’s

unreasonable and vexatious multiplication of these proceedings.

Therefore, we shall make the orders to show cause absolute and

order Mr. Jones personally to pay $4,078.50, $4,453.50, and
 - 39 -

$4,266.00, in docket Nos. 3405-05L, 3489-05L, and 3490-05L,

respectively, pursuant to section 6673(a)(2).6

IV. Conclusion

To reflect the foregoing,

An appropriate order will be

issued, and an order and decision

will be entered in each docket.

6
Alternatively, with respect to respondent’s attorney’s
fees allocated to reviewing case files and answering petition, we
make the award pursuant to Rule 33(b), as discussed supra.